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Inside the Texas Buyout Firm Betting on Metals and Missiles
Arthur Hollingsworth / Founder & Managing Partner, Lone Star Investment Advisors
About this episode
Private equity has gotten so large that Arthur Hollingsworth says he is not even in the shallow end of the pool. He is in the kiddie pool. That kiddie pool is companies doing 5 to 10 million dollars of EBITDA, bought at 4 to 7 times, in one state and nowhere else.
Ryan Harper sits down with Arthur Hollingsworth, Founder and Managing Partner of Lone Star Investment Advisors, for a full walk through the lower middle market. Lone Star has raised six funds and invests only in Texas, concentrated in infrastructure, metals, and aerospace and defense.
Inside this episode
- His buy box in his own numbers: 5 to 10 million of EBITDA, 4 to 7 times, a target price of 15 to 40 million
- The three levers of every buyout, and why multiple expansion is the one that matters
- The thermal layer: why a 10 million dollar EBITDA company gets a better multiple than a 9
- Which of a family owner's three advisors is genuinely motivated to introduce you, and why
- Why he replaced the quarterly board meeting with a call every week, 52 weeks a year
Chapters
- 0:00Cold open
- 0:51The cold LinkedIn message that made this episode happen
- 4:55Why every fund is targeted to Texas
- 5:03"If Texas were a country again"
- 7:20Infrastructure, metals, aerospace and defense
- 9:13"Metals? Good. More for me."
- 12:18Tariffs, and what a GP does when the rules change
- 13:13A call every week instead of a board meeting every quarter
- 15:13The chief spaghetti thrower
- 16:25The three buckets every company on earth falls into
- 19:22Real holding periods, and the rise of zombie funds
- 20:39The three levers: grow EBITDA, pay down debt, expand the multiple
- 21:20The thermal layer, and why multiples step up
- 23:46Ken Hersh, and surviving the lows in oil and gas
- 25:18The LNG window: Ukraine, Qatar, and the Gulf Coast
- 27:13What makes a good deal: first institutional capital
- 29:26Why the wealth manager is the most motivated of the three
- 31:01Is this just wholesaling for companies?
- 32:31"The most public, ultra secret marriage"
- 34:13Why a triple net lease trades at a 4 cap
- 38:01"I am not even in the shallow end. I am in the kiddie pool."
- 38:42The buy box: EBITDA, multiples, and price
- 40:50What LPs commit to before they know what is in the fund
- 42:58"We learned not to pet the rattlesnake"
- 45:58Six funds, eight portfolio companies, and the exit count
- 47:13"I am 26 years old and I look like this"
- 47:41The lesson from the failures: never leave a company unsupervised
- 48:58Just how many private equity funds exist now
- 52:11Why business is the best anti poverty force there is
- 55:06Was Warren Buffett right about EBITDA?
- 57:30Education, Harvard, and Alexander Hamilton Scholars
- 59:05Microfiche, ChatGPT, and learning how to learn
- 1:03:14Losing the elitism
- 1:05:52Leadership is like a string, you cannot push it from behind
- 1:07:28Do not say problem, say puzzle
- 1:08:30State Service, and four reinventions in one company
- 1:13:37The 680,000 pound puzzle at Trinity Forge
- 1:17:19What he is looking for right now
- 1:18:33Why civic work beats philanthropy, and the I-30 problem
From the taping
This interview is for informational and educational purposes only and is not investment, legal, or tax advice. Nothing here is an offer or solicitation to buy or sell any security. Private market investments are illiquid and carry risk of loss, including loss of principal, and are generally available only to accredited investors. Views expressed are those of the speakers. Figures cited by guests are their own and have not been independently verified. Do your own due diligence and consult your own advisors.